Details

Case

Decline of The Pakistani Rupee

Fawad Ishaq, Naim Sipra

INDUSTRY : Financial Instruments

AREA : Finance

ORGANIZATION : Pakistani Rupee

LENGTH : 19

LUMS No : 02-550-96-1

PUBLICATION YEAR : 1996

KEYWORDS:

Pakistani Rupee Decline,Finance,Financial Instruments

DESCRIPTION:

The rupee was devalued by 12% during the fiscal year 1995-96. This devaluation was generally supported by the textile industry, but there were many people who argued against it. To understand the impact of devaluation on the Pakistani economy, the Lahore Chamber of Commerce and Industry held a debate between Professor Sajjad Haider, senior economist at the Chamber, and Professor Ijaz Nabi of LUMS. Professor Haider supported the devaluation decison while Professor Nabi presented a more cautionary scenario. This case is a summary of this debate. The key issue discussed was the interlinkage between budgetary deficit, trade balance, inflation, export competitiveness and foreign currency reserves. 

LEARNING OBJECTIVES:

The main teaching objective of the case is to study the effect of devaluation on the economy of Pakistan. The relation between budgetary deficits, trade deficits and foregin reserves and their linkage to the devaluation decision should be discussed in detail in order to explore the root cause of devaluation. The role of Nominal, Real and Equilibrium exchange rates as economic indicators should also be discussed. The students should bring out the exchange rate parity conditions including purchase power parity and the interest rate parity using the data avaliable.

SUBJECTS COVERED:

Finance